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STANDING COMMITTEE ON PUBLIC ACCOUNTS; LABOUR & PUBLIC ENTERPRISES SELECT COMMITTEE
2 March 2005
UNEMPLOYMENT INSURANCE FUND ANNUAL REPORT 2003-2004: HEARING
Documents Handed out:
Annual Report of the Unemployment Insurance Fund 1 April 2003 - 31 March 2004
Auditor General’s Report
The Auditor’s Report of the Unemployment Insurance Fund for the period of 1 April 2003 - 31 March 2004 was interrogated. The Committee's concerns included the inability of the Unemployment Insurance Fund to handle its finances such as the fraud regarding the disappearance of cheques, the failure to account for fixed assets and the rampant corruption. UIF management explained to the Committee that they had enlisted the services of an external service provider in their IT department to streamline their services. They assured the Committee that from the beginning of the next financial year, 1 April 2005, financial management systems would be in place.
Mr P Gerber (ANC) raised a concern that the Committee had to process 286 annual reports of government entities each year and this pattern could not be sustained, especially when such poor auditor reports as that of the UIF were delivered. He said that answers, commitments and solutions would have to be made in order for this hearing to be successful in improving the financial management of the UIF.
Mr D Gumede (ANC) complained about the unreliability of information regarding the possible insolvency of the UIF. He saw this as a central problem based on the incomplete financial registers that had been given to the Committee and the poor report in general it had received from the Auditor General. He emphasised the importance of proper management that focussed on people, rather than delegation of management via public-private business relationships. He asked what had caused the financial registers to be incomplete every year since 2002.
Dr V Mkosana Acting Director General of the Unemployment Insurance Fund (UIF) confirmed that their implementation of government procedures had been insufficient, but he said they had problems with their fixed assets, mainly computers. They had contracted an external service provider, Siemens, in order to solve their technical and hardware problems. The outsourcing had improved the accuracy and updating process regarding the register process. Most problems still related to the sharing of fixed assets between the UIF and the Department of Labour.
Mr S Mkhonto Commissioner of the UIF said that the sharing of physical assets had been complicated by the mobility of these assets, because repairs needed to be done on a regular basis.
Mr Gumede suggested that offices that Mr Mkosana had referred to, should have been managed as separate entities. He felt that would make both entities more responsible and accountable. He asked whether any action had been taken against those that did not manage their portfolios properly.
Dr Mkosana replied that the UIF had completed a report with recommendations on how to improve financial reports and appropriate action would be taken on those who were found to have done wrong
Mr Gumedi asked what actions had been taken since 2002 until 2005 to rectify problems.
Mr Mkhonto replied that since 2005 asset counts were done accurately. Spreadsheets had been used in the past to keep assets registered, but they had not been integrated in the financial report. A new asset register had been approved in August 2004 as so ensure that all fixed assets would be included in the reports in 2005.
Mr Gumede asked whether anyone had been punished for not being accountable for their responsibilities.
Dr Mkosana replied that they had taken action. For example, the manager in charge of finances had been removed from his post, because of his failures.
Dr G Woods (IFP) said that the lack of communication between the Director General and the Commissioner convinced the Committee that administrative problems were prominent in the UIF structures due to structural defects. This had indeed caused a break-down in accountability. He emphasised the importance of responsibility, accountability and authority within any organisation.
Dr Mkosana agreed that the current inefficiency was not sustainable and the Minister had also supported that view. They had done research on models used in other countries in order to get an appropriate model for South Africa regarding the registration process. He said that certain proposals had been made and that the Department of Public Service as well as the National Treasury had discussed the restructuring of public entities. He concurred with Dr Woods that responsibility, accountability and authority were the three issues that had to be improved upon.
Dr Woods said that he failed to see any complete proposals for improvement that were supposedly given and asked to whom were they given and when the adjustments made would be seen.
Mr L Kettledas, Deputy Director General, Department of Labour, replied that most officials in the UIF could did not have the necessary expertise to deliver upon set standards. They had consulted with National Treasury and were advised not to proceed too fast. Even though a model had been proposed, they had been advised to search for more possibilities.
Dr Woods asked why something had not been done earlier to make management more efficient, irrespective of what had been said to them by other authorities.
Dr Mkosana replied that he was confident that everything would be in place by the end of April 2005 and that they could be held accountable to that promise.
The Chairperson indicated that questions could now be directed on issues of governance.
Mr G Koornhof (ANC) commented that the issue of governance was central to all problems encountered by the UIF management. The accounting officer needed to clarify whether they were part of the Department of Labour or a separate entity. The UIF's manuals were outdated and not properly implemented. He questioned the accountability of labour centres. He asked how the UIF had structured their labour centres and how the issue of dual responsibilities was being addressed.
Mr Mkhonto replied that officials had to perform dual functions for the Department and the UIF. The Department was not 100% UIF and they were trying to introduce a one stop office. Officials in the one stop office would be trained across various policies to deliver the appropriate service. Inadequate internal controls had been updated with new systems. The lack of tracking devices in most provinces had complicated the ability to deliver on time.
Mr Koornhof commented that dual responsibility was a serious problem and that it was good to have updated manuals. He asked how the UIF had monitored whether manuals were indeed updated and implemented. He questioned whether the reporting structures had ensured accountability and that the final responsibility rested with the accounting officer.
Dr Mkosana said they had been considering the advantages and disadvantages of each option regarding the implementation of the different registration models. He said they would use the critique they had received from the committee in a constructive manner, in order to choose the best model to simplify the registration process for UIF applicants. Dr Mkosana said this would ensure that better results were obtained from management in the near future.
Mr D Gumede asked why there were no operational organisations that allocated people with effective management skills in order to act within the present legal framework. What would be done to address the issue of dual responsibilities.
Mr T Mofokeng (ANC) said that it was clear that there were problems within the management and that the Director General of the Department of Labour had not taken any accountable action. He suggested that the Director General should be informed in order to give direct, accountable answers to the Committee.
Mr Mkhonto said that in April 2002, the Unemployment Insurance Contributions Act was implemented, which enabled the UIF to be responsible for the management of funds that had to be allocated to the unemployed. Based on this change in legislation, the UIF did not have to comply with financial requirements and therefore sought exemption from the Minister of Finance. He stated that the SIYAYA project was designed to bring a new approach to management in order to integrate all systems. This system would require any individual who claimed they had the right to apply for insurance funds to give their details as required, in order for the administration process to be more efficient. If the administration process was monitored more effectively, fraud could have been prevented in its earliest stageS. This project was supposed to be implemented on 1 September 2004, but when the new officer was employed in August 2004, the UIF was requested to withdraw SIYAYA. However, SIYAYA had since been updated and reinstalled.
Mr Mofokeng asked why that project did not take off earlier and whether they had in fact apologised for this delay.
Mr Mkhonto replied that they did not apologise and that they could not proceed due to the challenges they encountered. SIYAYA had brought new financial requirements and they needed a new managing approach to react to the process of change. He promised that all the issues would again be dealt with in the 18 March 2005 report.
The Chairperson welcomed any comments from the Committee.
Ms A Muller, Office of the Auditor General, asked why there were no updates available on SIYAYA since it has been implemented.
Mr Mofokeng raised his concern that the same problems were still being discussed in 2005 that were discussed in 2002 and asked how this was possible. He suggested that the UIF should set a date and year in which everything would be in place.
Mr Mkhonto replied that Siemens had drawn up a matrix where progress had been reviewed on a monthly basis. Issues had been addressed, for an example, logical access where all users were registered with passwords that changed monthly. A problem occurred when staff members in provinces had left passwords on their desks in order to remember it. Staff was informed not to share their passwords. With regard to security, it was an ongoing issue and Members would be informed on the progress of this issue on a regular basis.
Mr Gerber queried why the Auditor General only signed a statement two months after he had made it. He said that the contract with Siemens was R1, 5 billion rands per year, and that their services had been contracted from September 2003 until July 2005. He therefore felt that the money was wasted on fruitless expenditure. And why was it not reflected in the report?
Mr Mkhonto replied that they had felt that outsourcing those services was the best option. He added that Siemens had unlimited access and use of the UIF facilities and DoL’s fixed assets. However, during the course of the 2004, the same assets were found not to be utilised and Siemens had to replace these assets. The fact that some assets were movable had posed another challenge when it came to registering them.
Mr Gerber said that money had indeed been wasted.
Dr Mkosana said that they were bound to these contracts and that they were subject to a phasing out period.
Mr Gerber enquired about the possibility of a sunset clause, which was a "noble" way of getting out of an existing contract, without having further unnecessary expenditure. He said that all the UIF's variations for their properties were done in March 2003 and asked for it to be updated to include all the necessary evaluations. He also wanted to know what had happened to the shares that Sanlam and Old Mutual have in the UIF and why it was not registered in the financial reports.
Mr Mkhonto admitted that he was not informed of all the facts. He said that they might take over the shares from those shareholders. He asked the Committee to give them time to collect more information on this subject and give a written reply.
Mr Gerber asked how many executive financial managers were appointed and what would be done before the UIF appeared before the Committee again.
Ms A Dreyer (DA) asked what would be done to harmonise data and what measures had been taken to enforce that. How long would it take to complete the task?
Dr Mkosana replied that he could not provide a direct answer on that matter, but that they would give a written answer when it was finished.
Ms Dreyer asked how many cheques had been handed out to beneficiaries of the UIF and what steps had been taken to trace people in order to give them the benefits due to them.
Mr Mkhonto replied that there were still a number of outstanding cheques, but he could not confirm the exact number. He said that this matter had been brought to the Committee and that there were possible solutions to this problem. However, a solution had been found by distributing the funds through electronic services via debit cards. The First National Bank had agreed to offer free banking facilities in order to help solve this problem.
Ms Dreyer asked what was the average time between submitting a claim and the pay out. When would the electronic service be fully implemented?
Mr Mkhonto replied that it currently took six weeks to attend to these claims but that they were striving to shorten that period to between 28 and 40 days. He said that they wanted to implement it by the end of 2006.
Mr Gumede asked how long the Department and UIF took to do bank reconciliation.
Dr Mkosana replied that they had asked advice on how to approach the reconciliation process. Since the end of November 2004 they had seen reconciling being done within a week.
Mr Mkhonto said that they had received assistance services from their Siemens partner. Only the Eastern Cape had been experiencing problems. He said that some provinces were fully reconciled while others were not.
Mr Gumede asked whether the supervisor or the service provider should collect the information.
Mr Mkhonto said that all staff would be trained to do the required reconciling so that the Department could move away from the use of cheques.
Ms L Mabe (ANC) asked whether the UIF and the Department of Labour could be separated, and why ineffective employees were not being removed and replaced.
Mr Mkhonto referred to a manager that had in fact been demoted. He said that they were developing a model to effectively determine whether managers were fulfilling all the responsibilities entailed in their positions.
Mr E Trent (DA) asked that written replies should be given on matters of a non-financial nature and more specifically on legislation that had not been complied with.
Ms T Tobias (ANC) asked what mechanisms have been created to correct the errors committed by the UIF. What had happened to the money given for fraud prevention? Were the police involved in the prevention of and the interception of stolen cheques, and why were there so few women in leadership positions?
Mr Mkhonto replied that the benefits paid in error were rectified by means of an internal audit function.
Mr V Smith (ANC) suggested that legal requirements be drafted for annual reports that should be given to the relevant parliamentary committees to review those reports. His concern was based on the feeling that the UIF's report had not been properly drafted. He referred to a "copy and paste" situation on page eight and nine of the report, where the relevant numbers did not match the relevant years. He said that members of the UIF were underestimating the intelligence of the Committee to correctly oversee their report. He felt such behaviour was unacceptable. He added that this needed disciplinary action.
Dr Mkosana said that he accepted the comments and that he took them seriously.
Ms D Kasienyane (ANC) said that provinces should be held responsible for the state of UIF in their respective areas and that they needed to be monitored.
The Chairperson thanked all present for their attendance and concluded that the public service had to be "sharpened" by a true commitment to service delivery.
The meeting was adjourned.
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